To This Day, No One Knows What Financial Firms Are Sitting on

As powerful as it may be, the Fed is not the market. And since the Fed failed to restore trust in the system by forcing all bad debts to light, the financial world has grown increasingly volatile and broken as investors grow increasingly distrustful of the system and begin to pull their money from it: see market volumes continuing to plunge.

Nowhere is the lack of trust more apparent than in the financial sector. Indeed, it was a lack of trust between banks (inter-bank lending) that caused the credit markets to jam up in 2008, which resulted in the Crash.

That lack of trust continues to this day. In the post-Lehman collapse, instead of forcing real derivative and credit risk out into the open, the Federal Reserve and regulators instead suspended accounting standards and allowed financial firms (and other corporate entities) to continue to lie about the true state of their balance sheets.

As a result of this, the financial sector remains rife with fraud and impossible to accurately value (how can you value a business that is lying about its balance sheet?).

Those times in which a company was forced to value its assets at market prices have always seen said values losing 80%+ value in short order: consider Washington Mutual, which sported a book value north of $70 billion right up until it was sold for… $2 billion.

This type of fraud is endemic in the system. Indeed, we got a taste of just how problematic a lack of transparency can be with MF Global’s bankruptcy, in which a firm with $42 billion in assets lost over 80% of its value since August only to reveal in bankruptcy that it had stolen over $700 million worth of clients’ money.

That MF Global engaged in fraud and stole clients’ money is noteworthy. However, the far more important issue is: HOW did this company receive primary dealer status from the NY Fed nine months before imploding?

The Primary Dealers are the banks that actively engage in day to day activities with the New York Fed regarding the Fed’s monetary policies. Primary Dealers also participate in US Treasury auctions.

Put another way, Primary Dealers are the most elite, well-connected financial firms in the world. They have unequal access to both the Fed and the US Treasury Dept. In order for MF Global to have attained this status it must have passed through a review by:

1) The New York Fed

2) The SEC

This is not a quick nor superficial process. According to the NY Fed’s own site:

Upon submission of a formal application, a prospective primary dealer can expect at least six months of formal consideration by the New York Fed. That consideration may include, among other things, on-site reviews of front, middle, and back office operations, review of compliance programs and discussions with compliance and credit risk management staff, discussions with senior management about business plans, financial condition, and the ability to meet FRBNY’s business needs, review of financial information, and consultation with primary supervisors and regulators.

MF Global passed through all of these reviews to became a primary dealer in February 2011. A mere nine months later, the firm is in Chapter 11 and has admitted to stealing clients’ funds to maintain liquidity.

These developments reveal, beyond any doubt, that financial oversight in the US is virtually non-existent. This returns to my primary point: that trust has been lost in the system. And until it is restored, the system will remain broken.

A final note on this: the NY Fed is the single most powerful entity in charge of the Fed’s daily operations. How can any investor believe that the Fed can manage the system and restore trust when the NY Fed granted MF Global primary dealer status a mere nine months before the latter went bankrupt?

If the NY Fed cannot accurately audit a financial firm’s risks during a six month review, then there is NO WAY an ordinary investor can do so.

This is one of the biggest risks in the system: that no one has a clue what financial entities are sitting on in terms of garbage derivatives and debts. As MF Global proved, this risk can result in a TOTAL loss of funds.

This type of fraud will continue until the system breaks. At that point hopefully the bad debts will finally clear from the system and we can actually lay a foundation for growth.

They are sitting on mountains of faith-based "evidence of debt", not money in any sense of the word. See 18 USC 333

18 USC § 333. Mutilation of national bank obligationsWhoever mutilates, cuts, defaces, disfigures, or perforates, or unites or cements together, or doesany other thing to any bank bill, draft, note, or other evidence of debt issued by any national bankingassociation, or Federal Reserve bank, or the Federal Reserve System, with intent to render suchbank bill, draft, note, or other evidence of debt unfit to be reissued, shall be fined under this titleor imprisoned not more than six months, or both."

They use this faith-based evidence of debt to allegedly control some real things as well as lots of fake paper obligations.

Once the faith begins to really erode, the faith-based evidence of debt is destroyed along with a lot of lives.

I put no faith in Central Bankers or their product, or so-called "financials", but I have plenty of popcorn to watch the reset. Expect to be interesting and messy. No idea when it will happen.

Forcing real derivative and credit risk out into the open would remove all doubt that the banking system is insolvent. At least now there is some doubt. The system may not run on confidence, but it can't run with a total lack of confidence.

They are sitting on that raise you never will get, on that retirement fund that you will truly never have, on the gazillion extra hours you are working while making less and less.

They are sitting on your dreams and your children's futures.

Their fat, privileged, entitled ass cheeks are straddling the face of your very future and everytime they giggle and take more from you, you then get to breath in more shit and more farts. Get off your knees and kill these fuckers.

If the NY Fed cannot accurately audit a financial firm’s risks during a six month review, then there is NO WAY an ordinary investor can do so.

I have no idea what the Fed did. They may have been having pedicures and drinking champagne for all we know. Anyways, the result is the same. My guess is all the banks are pretty much the same as well.

Get out of paper. Stockpile household products & long term foodstuffs. Teach your kids about the days when Americans carried around silver coinage and the fact that the past 100 years was abnormal. Build a strong support system cause you're gonna need it. I'm worried.

Get out of silver while you can...it has not been a monetary metal since the Chinese abandoned it in 1935. It has been used in coins yes but now no central bank holds any, they hold GOLD.

Silver is an industrial metal. As such society cannot condone hoarding it, it has too many uses. Just as we do not condone hoarding food, limber, copper or water (on a national level) we cannot encourage silver savings.

Gold is the perfect store of value. Less than 1% is used for any other purpose than 'store of value'. It is the focal point of 5000 years of human decision making.

Those in silver at the reset will never stop crying.

I told you so. Even though I know I'll be hated here at ZH I have at least done my duty.

Remember, central banks make the rules and they say: gold ...yes, Silver...no.

Ok so when the metals markets (both gold and silver) get slammed down in obvious maniputation we are supposed to not look at the silver manipulation, only the gold? So you suggest that silver isn't manipulation because "society cannot condone hoarding it" and therefore the silver price must be balanced by a fair price discovery in the market?

Really?

Silver is an industrial metal only and no one will ever use it as a store of value? Ever?

Only gold? Really?

Sorry but there is far too much evidence that contradicts your assessment of silver.

The solution to knowing the true insider accounting is surprisingly straight forward and simple. It is this. Have the lead accountants that make up a companies quaterly report be polygraphed by licensed polygraph examiners as to the full truthfullness of their quarterly report. ...... For full disclosure I should say that I invented the first computerized polygraph 27 years ago and that my company sells polygraph equipment worldwide.

I don't have faith in technology. I suspect after Mr. Snowden's disclosures, many other's are like me in that way. Besides, I don't like the idea of having some governing body forcing people to take such truth tests like that. It sets a very evil precedent, IMHO.

I would much rather use a rope in the public square along with 100% confiscation of assets for any who are found to have committed fraud. At least they wouldn't do it again and we wouldn't need to pay for long prison sentences. Besides, prisons today are not about punishment and rehabilitation. They are more simply massive rape rooms, criminal training, and jihadi recruitment centers.

Respectfully, it is difficult to have it both ways. The insiders with criminal activity are very well protected. Also, arguably the insiders lobbyists have already corrupted our economy, leaders, and privacy.

And not only that, have it for anyone that the SEC and Fed thinks may be sketchy aka talking circles. If they don't want to do it fine, but they won't be a primary pure and simple and then you will know that they are trying to hide something. The only way they will learn is if they may go to prison for long stretches and lose everything along with the ones under them. MF global should have never went bankrupt 9 MONTHS AFTER PRIMARY DEALER AUDIT!!!!!!!! The fix was in and they didn't look to hard because Corzine was the Democrats (and republicans) bundler for getting donations from Wall Street. I bet anything that we have a massive financial refuse that is just under the surface and will soon hit the surface. And when it does it will break the system.

"For example, in 2008, when former Goldman Sachs CEO Jon Corzine was governor of New Jersey, the New Jersey Division of Investment bought $400 million ofCitigroupstock (January 2008), $300 million in Merrill Lynch stock (January 2008), and $180 million in soon-to-be-bankrupt Lehman shares (June 2008).

The afternoon that New Jersey announced its Lehman investment, Corzine reappointed Orin Kramer as the Investment Council Chairman. Both Corzine and Kramer were key fundraisers for President Barack Obama’s election campaigns."